The accountant at Cedric Company has determined that income before income taxes amounted to $7,000 using the FIFO costing assumption.If the income tax rate is 30% and the amount of income taxes paid would be $315 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption?

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Quizplus · Accepted Answer

The difference in taxes ($315) implies a difference in income before taxes due to the costing method. Since LIFO results in higher taxes, it means LIFO income before taxes is higher. The tax difference is $315, which is 30% of the income difference. Thus, the income difference is $315 / 0.30 = $1,050. Therefore, LIFO income before taxes is $7,000 + $1,050 = $8,050.

The Accountant at Cedric Company Has Determined That Income Before